For the equity market, May was a month of two halves. In the first half global equities performed strongly. However, gains were pared back mid-month when investors contemplated whether the US Federal Reserve would begin to taper asset purchases.  Any reduction in the level of bond purchases will be heavily reliant on the continuing improvement in the US economy and particularly the US labour market. The US market continues to be supported by the American Consumer which is being supported by lower inflation which is increasing household purchasing power.

Overall, global equities strongly outperformed global bonds over the month.  The MSCI World Index rose by 1.5% in local currency terms.  Global government bonds fell by 1.7% in local currency terms. The S&P 500 Index ended May up 2.1% in US dollar terms. The financial sector was the best performing sector of the market, rising 5.9% in May and 20.6% year-to-date. Utilities and telecoms were the worst performing sectors in May, dropping 9.6% and 7.4% respectively.   Despite weaker Q1 GDP growth, European equities rose 2.6% in euro terms over the month.  A rising Purchasing Managers Index and rising German business confidence buoyed markets. Emerging market equities lagged developed markets with the MSCI Emerging Markets Index rising 0.8% in local currency terms and declining 0.8% in euro terms.

Rising bond yields made investors nervous about the Japanese government’s ability to kick start the economy.  This resulted in Japanese equities witnessing a large sell off towards the end of the month, falling 2.5% over the month. 

Bond markets witnessed sharp falls across the board. Global government bonds fell 1.7% in local currency terms. European bonds fell 1.2% in local currency terms. Emerging market bonds as represented by the JP Morgan EMBI+ Index fell 4.3% over the month.  Corporate bonds fared the best falling by 0.2% (as represented by the Barclays Euro Aggregate Credit  - Corporate Index).

 Source of all data: The FT and JP Morgan June 2013.